The Wal-Mart Weekly: Filling niche needs could grow U.S. sales

Sales are growing, but just not fast enough

It's been well covered recently that sales in U.S. Wal-Mart locations have been trending in odd directions. Yes, sales have not been as sprightly compared to the competition, but Wal-Mart is bigger than almost all of its competitors combined. Can the company continue growing at such a rapid pace and ever meet the expectations that it sets up in the marketplace? No. In fact, Wal-Mart CFO Tom Schoewe has said recently that the store growth rate for Wal-Mart locations in the U.S. may slow down as the retailer stops focusing so much on growing store count and more on growing sales as existing stores, maximizing every possible opportunity for a sale at each U.S. location.

That's much easier said than done, since the marketing angle of Wal-Mart right now continues to be "Always Low Prices." That's all well and good, but is it enough to continue luring more than its core customer base in the march to maximize sales at existing stores? Efforts so far have not shown much result, although in fairness implementing any region-wide policy is not small feat for Wal-Mart. Logistically speaking, it is a huge challenge.

Wal-Mart's growth strategy -- from here to now

Well, Wal-Mart's strategy to pull just about every cost saver and push every sale from every existing store is good one. There is no reason to overpopulate the entire United States with so many Wal-Mart stores that it will cannibalize itself in terms of market saturation. Customers are also shopping elsewhere these days, and Target's successful market competitiveness has kept Wal-Mart on its toes. Now, Target is not anywhere as large as Wal-Mart, but sheer scale and size is not the whole story. Just being big does not mean ultimately successful and profitable, although that does indeed describe Wal-Mart in the last two decades. Will it in the next two decades, though?

Wal-Mart must get into the selling of more niche items. U.S. sales chief Eduardo Castro-Wright indicated in 2006 that the retailer would customize more of its stores to the tastes and demographics of each area instead of planting a formulaic big-box location in every area. It's amazing Wal-Mart didn't recognize this years ago, but perhaps the company was growing so rapidly that it could barely keep up with itself, let alone look at a "customizable" strategy to prepare for the future.

So, how does Wal-Mart grow sales at existing stores?

Recently, a vacation to the Missouri area exposed something that got this writer's brain cranking a bit. In a Wal-Mart Supercenter, the retailer has given an entire shopping aisle (well, one side of it) to wine and some liquor (Vodka and others). Now, in some of the states I've visited recently, there were no products like this to be found on Wal-Mart's shelves. Dedicating an entire grocery aisle to medium-quality wines was an interesting merchandising element to witness, since every square foot in a Wal-Mart store, I'm sure, is studied in order to maximize "sales per square foot" -- and is Wal-Mart really selling so much wine that it can afford to dedicate one entire aisle side to those products?

This brought up the thought of what strategy the retailer has for its U.S. stores to maximize sales for each individual store while possibly providing niche items in the grocery, health and beauty aid and general merchandise areas. In many retail cases, niche is where it's at -- and successfully marketing to that angle can produce excellent results. Niche stores generally prosper outside of Wal-Mart, so when you see a new Supercenter being built, it's almost guaranteed than there are perhaps dozens of smaller niche companies waiting to build around the "retailer anchor" (a Wal-Mart Supercenter) and just get the ton of peripheral business that is sure to come as the legions of Wal-Mart shoppers visit the retailer day after day. What if Wal-Mart tried entering into some of those niches? General discount merchandise is Wal-Mart's specialty (with some small exceptions) -- but is it time to change that strategy?

Growing sales in existing stores will require merchandising changes, bar none

If Wal-Mart's CFO is correct, how is the company going to grow sales at existing stores? We already know that customizing the product selection to the area where each Wal-Mart stores (and Supercenter) is located is underway. Which specific areas, though, will Wal-Mart keep as general merchandise areas and which areas will the retailer use to deviate from the mass merchandise retail model and into the niche, highly selective product selection model? This is a neat experiment really, but it must work if Wal-Mart is to try grabbing a foothold to grow 'profitable' sales at existing stores.

One example I can think of is a grocery competitor -- Albertson's. This grocery powerhouse, at least in the stores I've seen recently, dedicate a pretty decent portion of the meat section to fresh seafood. Lobster, salmon, trout and other seafood items (sometimes exotic seafood selections) are all available. It's hard to say whether Albertson's sells a lot of $22 lobster tails and $16 salmon fillets -- and whether Wal-Mart could sell these same higher-priced items to its core customer base (lower-income shoppers), or whether Wal-Mart would actually lure previous (or new) shoppers into stores for "always low prices" on niche food items like this.

It's all a crapshoot right now as the company tries to redefine itself for the "new" customer who demands niche items, competitive (maybe not the lowest) prices and a decent shopping environment with a little flair, or if Wal-Mart thinks it has a chance to grow sales with the current customer base it has, who may or may not be persuaded to just buy more stuff (which is a discussion for another day).

Until then, enjoy your weekend, and I'll be back next week with another Wal-Mart Weekly.